XII – ACCOUNTINGa4accounting.weebly.com/uploads/7/1/2/8/7128209/xii-1999.pdf · X I I – Accounting – 1999 (Regular / Private) Page 2 ... Q.No.2 PARTNERSHIP – FORMATION GIVEN

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1999

Compiled and Solved by:

S.Hussain

XII – ACCOUNTING

REGULAR /

PRIVATE

http://www.a4accounting.net/

Compiled & Solved by: S.Hussain [email protected]

X I I – A c c o u n t i n g – 1 9 9 9 ( R e g u l a r / P r i v a t e )

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ACCOUNTING – 1999

REGULAR / PRIVATE NOTE: Attempt any four questions. All questions carry equal marks. Q.No.1 SINGLE ENTRY GIVEN Mr. Adnan maintains his accounting records on single entry system. His financial position on January 1, 998 was as under:- Cash Rs.9,000; Accounts receivable Rs.50,000; Merchandise inventory Rs.20,000; Office equipment Rs.80,000; Accounts payable Rs.40,000. Cash receipts and payments for the year ended 1998 were as follows:- Collection from customers Rs.100,000; Payment to suppliers Rs.60,000; Borrowed from bank Rs.4,000; Cash sales Rs.30,000; Cash purchases Rs.20,000; Salaries expense Rs.20,000; Rent expense Rs.10,000; Advertising expense Rs.5,000; Drawings Rs.10,000. During the year the purchase returns and sales returns amounted to Rs.5,000 and Rs.4,000 respectively. On December 31, 1998 the following additional information was available:- Accounts receivable Rs.40,000; Accounts payable Rs.30,000; Merchandise inventory Rs.30,000; Office equipment Rs.80,000. Data for the adjustment on December 31, 1998 were as under:-

(i) Depreciation on equipment is estimated Rs.5,000. (ii) Accrued salaries Rs.2,000. (iii) Prepaid advertising Rs.1,000.

REQUIRED (i) Compute the amounts of total sales and total purchases. (ii) Prepare Statement of Profit and Loss for the year ended December 31, 1998. (iii) Prepare Statement of Affairs (i.e. balance sheet) as of December 31, 1998.

SOLUTION 1 (i) Computation of Total Sales: Accounts receivable (ending) 40,000 Add: Cash collection from customers 100,000

140,000 Less: Accounts receivable (beginning) (50,000)

Net credit sales 90,000 Add: Sales return and allowances 4,000

Total credit sales 94,000 Add: Cash sales 30,000

Total sales 124,000



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Computation of Total Purchases: Accounts payable (ending) 30,000 Add: Cash payments to the suppliers 60,000

90,000 Less: Accounts payable (beginning) (40,000)

Net credit purchases 50,000 Add: Purchase return and allowances 5,000

Total credit purchases 55,000 Add: Cash purchases 20,000

Total purchases 75,000

SOLUTION 1 (ii)

MR. ADNAN STATEMENT OF PROFIT AND LOSS

FOR THE PERIOD ENDED 31 DECEMBER 1998 Sales 124,000 Less: Sales returns and allowances (4,000)

Net sales 120,000 Less: Cost of Goods Sold: Merchandise inventory (beg) 20,000 Add: Net Purchases: Purchases 75,000 Less: Purchase returns & allowances (5,000)

Net purchases 70,000

Merchandise available for sale 90,000 Less: Merchandise inventory (end) (30,000)

Cost of goods sold (60,000)

Gross profit 60,000 Less: Operating Expenses: Salaries expense (20,000 + 2,000) 22,000 Rent expense 10,000 Advertising expense (5,000 – 1,000) 4,000 Depreciation expense 5,000

Total operating expenses (41,000)

Net profit 19,000



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SOLUTION 1 (iii) MR. ADNAN

STATEMENT OF AFFAIRS AS ON 31 DECEMBER 1998

ASSETS EQUITIES

Current Assets: Liabilities: Cash 18,000 Accounts payable 30,000 Accounts receivable 40,000 Bank overdraft 4,000 Merchandise inventory 30,000 Salaries payable 2,000

Prepaid advertising 1,000 Total liabilities 36,000

Total current assets 89,000 Owner’s Equity: Fixed Assets: Capital 119,000 Office equipment 80,000 Add: Net profit 19,000

Less: All for dep. (5,000) 138,000

Total fixed assets 75,000 Less: Drawings (10,000)

Total owner’s equity 128,000

Total assets 164,000 Total equities 164,000

Computation of Cash Balance: Opening cash balance 9,000 Collection from customers 100,000 Borrowed from bank 4,000 Cash sales 30,000

Total cash receipts 143,000 Less: Total Cash Payments: Cash payments to suppliers 60,000 Purchases 20,000 Salaries expense 20,000 Rent expense 10,000 Advertising expense 5,000 Drawings 10,000

Total cash payments (125,000)

Cash balance 18,000

Computation of Capital at Start: Cash 9,000 Accounts receivable 50,000 Merchandise inventory 20,000 Office equipment 80,000

Total assets 159,000 Less: Total Liabilities: Accounts payable (40,000)

Capital at start 119,000



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Q.No.2 PARTNERSHIP – FORMATION GIVEN Khalid, Altaf and Tariq formed a partnership on April 1, 1999. They contributed as under: Khalid contributed Rs.115,000 in the shape of computer and photostate machine Rs.85,000 and furniture Rs.30,000. Altaf contributed Rs.90,000 in the shape of typewriter Rs.18,000, furniture Rs.10,000, ,merchandise Rs.20,000 and machinery Rs.42,000. Tariq contributed shop building of Rs,120,000. It was further decided that all partners should contribute equally, being equal partners. Khalid and Altaf invested further sufficient cash to give them interest equal to that of Tariq. REQUIRED

(i) Give necessary entries in General Journal of the firm to record the formation of partnership. (ii) Prepare balance sheet of the firm immediately after the formation.

SOLUTION 2 (i)

________ PARTNERSHIP GENERAL JOURNAL

FOR THE MONTH APRIL 1999

Date Particulars P/R Debit Credit

1 Cash 5,000 Equipment 85,000 Furniture 30,000 Khalid Capital 120,000 (To record the investment of Khalid)

2 Cash 30,000 Equipment 18,000 Furniture 10,000 Merchandise 20,000 Machinery 42,000 Altaf Capital 120,000 (To record the investment of Altaf)

3 Shop building 120,000 Tariq Capital 120,000 (To record the investment of Tariq)



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SOLUTION 2 (ii) ________ PARTNERSHIP

BALANCE SHEET AS ON 1 APRIL 1999

ASSETS EQUITIES

Current Assets: Owner’s Equity: Cash 35,000 Khalid Capital 120,000 Merchandise inventory 20,000 Altaf Capital 120,000

Total current assets 55,000 Tariq Capital 120,000

Total owner’s equity 360,000 Fixed Assets: Equipment 103,000 Furniture 40,000 Machinery 42,000 Shop building 120,000

Total fixed assets 305,000


Q.No.3 PARTNERSHIP – ADMISSION GIVEN Adeel and Raees are partners with capital balance of Rs,60,000 and Rs.40,000 respectively. They share profit and loss in the ratio of 3:2. They agree to admit Azim as a partner. REQUIRED Give the necessary journal entries in proper form and prepare balance sheet in each of the following cases separately:- Case I: Azim invests Rs.50,000 cash receiveing 1/3 interest. Case II: Azim invests Rs.40,000 cash, receiving 1/4 interest; his capital is to be credited with the

entire amount of his investment. Case III: Azim invests Rs.20,000 cash for 1/5 interest. Old partners are not ready to reduce their

capitals. SOLUTION 3 Case I: Computation: Old partners’ capital (60,000 + 40,000) 100,000 Add: Azim’s investment 50,000

Total capital of firm 150,000

For 1/3 interest Azim’s capital (150,000 x 1/3) 50,000 Less: Azim’s investment (50,000)

NIL

________ PARTNERSHIP

GENERAL JOURNAL


1 Cash 50,000 Azim Capital 50,000 (To record the admission of Azim)



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________ PARTNERSHIP BALANCE SHEET

ASSETS EQUITIES

Cash 50,000 Owner’s Equity: Other assets 100,000 Adeel Capital 60,000 Raees Capital 40,000 Azim Capital 50,000



Case II: Computation: (Goodwill Method): (The sentence “his capital is to be credited with the entire amount of his investment” indicated that goodwill goes to old partners). For 1/4 interest, Azim’s investment 40,000

Therefore total capital of firm (40,000 x 4/1) 160,000

For 3/4 interest, old partners’ capital (160,000 x 3/4) 120,000 Less: Old partners’ capital before admission (60,000 + 40,000) (100,000)

Goodwill to old partners 20,000


GENERAL JOURNAL


1 Cash 40,000 Azim Capital 40,000 (To record the admission of Azim)

2 Goodwill 20,000 Adeel Capital (20,000 x 3/5) 12,000 Raees Capital (20,000 x 2/5) 8,000 (To record the distribution of goodwill)


BALANCE SHEET

ASSETS EQUITIES

Cash 40,000 Owner’s Equity: Other assets 100,000 Adeel Capital 72,000 Goodwill 20,000 Raees Capital 48,000 Azim Capital 40,000





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Case III: Computation: (Goodwill Method): (Sentence “Old partners are not ready to reduce their capitals” represents goodwill goes to new Azim). For 4/5 interest, old partners’ capital (60,000 + 40,000) 100,000

Therefore total capital of firm (100,000 x 5/4) 125,000

For 1/5 interest Azim’s capital (125,000 x 1/5) 25,000 Less: Azim’s investment (20,000)

Goodwill to Azim 5,000


GENERAL JOURNAL


1 Cash 20,000 Goodwill 5,000 Azim Capital 25,000 (To record the admission of Azim)


BALANCE SHEET

ASSETS EQUITIES

Cash 20,000 Owner’s Equity: Other assets 100,000 Adeel Capital 60,000 Goodwill 5,000 Raees Capital 40,000 Azim Capital 25,000



Q.No.4 PARTNERSHIP – LIQUIDATION GIVEN the balance sheet of Ahmed, Bashir and Rahim who shared profits and losses in the ratio of 5:3:2 is as follows on December 31, 1998:-

ASSETS EQUITIES

Cash 35,000 Accounts payable 20,000 Other assets 165,000 Ahmed Capital 70,000 Bashir Capital 60,000 Rahim Capital 50,000

200,000 200,000

On the same date they decided to liquidate their business. REQUIRED Give necessary journal entries in proper form and prepare partner’s capital accounts under each of the following cases separately:-

(a) Other assets were sold for cash Rs.200,000. (b) Other assets were sold for cash Rs.80,000.

Accounts payable were paid in full and the balance paid to partners in each case.



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SOLUTION 4 Case (a):

________ PARTNERSHIP GENERAL JOURNAL


1 Cash 200,000 Realization 35,000 Other assets 165,000 (To record the sale of other assets in gain)

2 Accounts payable 20,000 Cash 20,000 (To record the payment of accounts payable)

3 Realization 35,000 Ahmed Capital (35,000 x 5/10) 17,500 Bashir Capital (35,000 x 3/10) 10,500 Rahim Capital (35,000 x 2/10) 7,000 (To record the distribution of gain among partners)

4 Ahmed Capital (70,000 + 17,500) 87,500 Bashir Capital (60,000 + 10,500) 70,500 Rahim capital (50,000 + 7,000) 57,000 Cash (35,000 + 200,000 – 20,000) 215,000 (To record the distribution of remaining cash)

GENERAL LEDGER

Ahmed Capital

4 Cash 87,500 Balance 70,000 3 Realization 17,500

87,500 87,500

Bashir Capital


70,500 70,500

Rahim Capital


57,000 57,000



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Case (b): ________ PARTNERSHIP

GENERAL JOURNAL


1 Cash 80,000 Realization 85,000 Other assets 165,000 (To record the sale of other assets on loss)

2 Accounts payable 20,000 Cash 20,000 (To record the payment of accounts payable)

3 Ahmed Capital (85,000 x 5/10) 42,500 Bashir Capital (85,000 x 3/10) 25,500 Rahim Capital (85,000 x 2/10) 17,000 Realization 85,000 (To record the distribution of loss among partners)

4 Ahmed Capital (70,000 – 42,500) 27,500 Bashir Capital (60,000 – 25,500) 34,500 Rahim capital (50,000 – 17,000) 33,000 Cash (35,000 + 80,000 – 20,000) 95,000 (To record the distribution of remaining cash)

GENERAL LEDGER

Ahmed Capital

3 Realization 42,500 Balance 70,000 4 Cash 27,500

70,000 70,000

Bashir Capital


60,000 60,000

Rahim Capital


50,000 50,000

Q.No.5 CORPORATION – ISSUANCE OF SHARES GIVEN Zafar & Company Limited made the following issuance. The par value of the company’s share is Rs.10:-

(a) Issued 15,000 shares at par for cash. (b) Issued 18,000 shares at Rs.12 each for cash. (c) Issued 9,000 shares at Rs.9 each for cash. (d) Issued 12,000 shares for the purchase of furniture worth Rs.130,000. (e) Issued 11,000 shares for the purchase of equipment worth Rs.100,000. (f) Issued 3,000 shares at par value to the promoters of the company for services rendered by them (g) Issued 7,000 shares at par in payment of stock dividend.



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REQUIRED Record the above transactions in the General Journal of the company. SOLUTION 5

ZAFAR & COMPANY LIMITED GENERAL JOURNAL


1 Bank (15,000 x 10) 150,000 Ordinary shares capital (15,000 x 10) 150,000 (To record the issue of shares at par)

2 Bank (18,000 x 12) 216,000 Ordinary shares capital (18,000 x 10) 180,000 Ordinary shares premium (18,000 x 2) 36,000 (To record the issue of shares at premium)

3 Bank (10,000 x 9) 90,000 Ordinary shares discount (10,000 x 1) 10,000 Ordinary shares capital (10,000 x 10) 100,000 (To record the issue of shares at discount)

4 Furniture 130,000 Ordinary shares capital (12,000 x 10) 120,000 Ordinary shares premium 10,000 (To record the purchase of furniture by issuing shares)

5 Equipment 100,000 Ordinary shares discount 10,000 Ordinary shares capital (11,000 x 10) 110,000 (To record the purchase of equipment by issuing shares)

6 Preliminary expenses 30,000 Ordinary shares capital (3,000 x 10) 30,000 (To record the shares issued to the promoters at par)

7 Retained earnings 70,000 Ordinary shares capital (7,000 x 10) 70,000 (To record the shares issued at par against stock

dividend)

Q.No.6 CORPORATION – FINANCIAL STATEMENT GIVEN Pak and Company Limited is registered with an authorized capital of Rs.3,000,000 divided into ordinary shares of Rs.10 each. The company’s book showed the following balances on December 31, 1998, the end of the accounting year before the closing process:- Debit Balances:- Cash in bank Rs.16,000; Accounts receivable Rs.52,000; Merchandie inventory (1.1.1998) Rs.10,400; Machinery cost Rs.1,120,000; Purchases Rs.360,000; Transportation – in Rs.36,000; Salaries expense Rs.44,000; Rent expense Rs.34,800; Auditor’s fee expense Rs.4,000; Director’s fee expense Rs.5,000 (Total Rs.1,682,200). Credit Balances:- Accounts payable Rs.46,000; Allowance for depreciation machinery Rs.136,000; Allowance for bad debts Rs.4,000; 10% Bonds payable Rs.278,800; Paid-up capital Rs.760,000; Slaes revenue Rs.360,000; Retained earnings Rs.97,400 (Total Rs.1,682,200).



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Data for adjustment on December 31, 1998 (i) Rent payable Rs.1,200. (ii) Merchandise inventory was valued on December 31, 1998 at Rs.170,000. (iii) Provide allowance for depreciation on machinery for the year Rs.30,000. (iv) Raise the allowance for bad debts to Rs.5,000. (v) Appropriate Rs.16,000 for plant extension and Rs.36,000 for contingencies.

REQUIRED (a) Prepare Income Statement for the year ended December 31, 1998 and also a Statement of

Retained Earnings. (b) Prepare Balance Sheet as of December 31, 1998 in classified form.

SOLUTION 6 (a)

PAK AND COMPANY LIMITED INCOME STATEMENT

FOR THE PERIOD ENDED 31 DECEMBER 1998 Sales 360,000 Less: Cost of Goods Sold: Merchandise inventory (beg) 10,400 Add: Net purchases: Purchases 360,000 Add: Transportation – in 36,000

Net purchases 396,000

Merchandise available for sale 406,400 Less: Merchandise inventory (end) (170,000)

Cost of goods sold (236,400)

Gross profit 123,600 Less: Operating Expenses: Salaries expense 44,000 Rent expense (34,800 + 1,200) 36,000 Auditor’s fee expense 4,000 Director’s fee expense 5,000 Depreciation expense 30,000 Bad debts expense 1,000

Total operating expenses (120,000)

Net loss 3,600

PAK AND COMPANY LIMITED

STATEMENT OF RETAINED EARNINGS FOR THE PERIOD ENDED 31 DECEMBER 1998

Retained earnings (opening balance) 97,400 Less: Net loss for the period 3,600

Total retained earning 101,000 Less: Reserves: Reserve for plant extension 16,000 Reserve for contingencies 36,000

Total reserves (52,000)

Retained earnings (ending balance) 49,000



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SOLUTION 6 (b) PAK AND COMPANY LIMITED

BALANCE SHEET AS ON 31 DECEMBER 1998

Equities Assets Shareholder’s Equity: Fixed Assets: Authorized Capital: Machinery 1,120,000 300,000 ordinary shares Less: All for dep. (166,000)

@ Rs.10 each 3,000,000 Total fixed assets 954,000

Issued & Paid-up Capital: Current Assets: 76,000 ordinary shares Merchandise inv. 170,000 @ Rs.10/- each 760,000 A/Receivable 52,000 Retained earnings 49,000 Less: All for b/d(5,000) 47,000 Reserves for contingencies 36,000 Cash in bank 16,000

Reserve for plant extension 16,000 Total current assets 233,000

Total shareholder’s equity 861,000 Liabilities: Long-Term Liabilities: 10% Bonds payable 278,800 Current Liabilities: Accounts payable 46,000 Rent payable 1,200

Total current liabilities 47,200

Total equities 1,187,000 Total assets 1,187,000

Additional Working:

AL-REHMAN COMPANY LIMITED ADJUSTING ENTRIES

FOR THE PERIOD ENDED 31 DECEMBER 1996


1 Rent expense 1,200 Rent payable 1,200 (To adjust the unpaid rent)

2 Merchandise inventory 170,000 Expense and revenue summary 170,000 (To adjust the merchandise inventory ending)

3 Depreciation expense 30,000 Allowance for depreciation – Machinery 30,000 (To adjust the depreciation expense)

4 Bad debts expense 1,000 Allowance for bad debts 1,000 (To adjust the bad debts expense)

5 Retained earnings 52,000 Reserve for contingencies 36,000 Reserve for plant extension 16,000 (To adjust the reserves)



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Q.No.7 DEPRECIATION ACCOUNTING GIVEN Tariq Corporation purchased machinery on July 1, 1997 at a cost of Rs.40,000. Additional costs were incurred as follows:-

(i) Installation and testing Rs. 2,400 (ii) Freight 1,200 (iii) Insurance while on transit 400 (iv) 2-year fire insurance policy 1,200

It is estimated that machinery will have a scrap value of Rs.4,000 at the end of its estimated service life of 10 years. It is also estimated that the machinery will have a service life of 40,000 working hours, producing approximately 20,000 units. REQUIRED Record the depreciation expense for the first two years under each of the following methods:-

(a) Working hours (operated first year 1,200 hours; second year 2,000 hours). (b) Production (produced first year 800 units; second year 1,200 units). (c) Straight Line Method. (d) 10% depreciation on Diminishing Balance Method.

SOLUTION 7 (a) Computation of Cost of Machine: List price of machine 40,000 Add: Additional Cost Incurred: Installation and testing 2,400 Freight 1,200 Insurance in transit 400

Total additional cost incurred 4,000

Total cost of machine 44,000

Computation of Depreciation Expense by Working Hours Method: Rate per hour = Cost – Scrap value Estimated life in hours Rate per hour = 44,000 – 4,000 40,000 Rate per hour = Rs.1 Depreciation expense for the period 31 December 1997 = 1,200 x 1 = 1,200 Depreciation expense for the period 31 December 1998= 2,000 x 1 = 2,000

TARIQ CORPORATION GENERAL JOURNAL


31.Dec Depreciation expense 1,200 1997 Allowance for depreciation 1,200 (To record the depreciation expense)

31 Dec Expense and revenue summary 1,200 1997 Depreciation expense 1,200 (To close the depreciation expense account)

31 Dec Depreciation expense 2,000 1998 Allowance for depreciation 2,000 (To record the depreciation expense)



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31.Dec Expense and revenue summary 2,000 1998 Depreciation expense 2,000 (To close the depreciation expense account)

SOLUTION 7 (b) Computation of Depreciation Expense by Units Production Method: Rate per unit = Cost – Scrap value Estimated life in units Rate per unit = 44,000 – 4,000 20,000 Rate per unit = Rs.2 Depreciation expense for the period 31 December 1997 = 800 x 2 = 1,600 Depreciation expense for the period 31 December 1998 = 1,200 x 2 = 2,400







SOLUTION 7 (c) Computation of Depreciation Expense by Straight Line Method: Annual depreciation = Cost – Scrap value Estimated life in years Annual depreciation = 44,000 – 4,000 10 Annual depreciation = 4,000 Depreciation expense for the period 31 December 1997 = 4,000 x 6/12 = 2,000 Depreciation expense for the period 31 December 1998 = 4,000



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SOLUTION 7 (d) Computation of Depreciation Expense by Diminishing Balance Method: Annual depreciation = Cost/Book value x Rate (%) Book value = Cost – Allowance for depreciation

Year Cost/Book Value Rate Depreciation Expense Book Value

1997 44,000 10% 4,400 x 6/12 = 2,200 44,000 – 2,200 = 41,800

1998 41,800 10% 4,180 41,800 – 4,180 = 37,620

TARIQ CORPORATION

GENERAL JOURNAL






Q.No.8 RESERVES AND FUNDS

(a) Define reserves and funds. (b) Differentiate between reserves and funds. (c) Name the three types of reserves and give an example of each. (d) Give the necessary General journal entries to record the creation and disposal of fund.



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SOLUTION 8 (a) Reserves: Reserves are part of capital of a company, other than the share capital, largely arising from retained from or from the issue of share capital at more than nominal value. The directors of a company may choose to earmark part of these funds for a special purpose (e.g. a reserve for obsolescence of plant). However, reserves should not be seen as specific sums of money put aside for special purposes they are represented by the general net assets of the company. Reserves are subdivided into retained earnings (revenue reserves), which are available to be distributed to the shareholders by way of dividends, and undistributable reserves, which for various reasons are not distributable as dividends. Fund: It is an asset created out of cash in the form of cash or securities. It is an asset account and shows in the balance sheet under the heading of assets. SOLUTION 8 (b)

RESERVE FUND

1. It is created out of retained earnings. 1. It is created out of cash.

2. Reserve is a voluntary provision made out of net income.

2. A provision is a change expense and revenue.

3. Reserve is part of owner’s equity. 3. Fund is an asset.

4. It is shown on the credit side of the balance sheet under owner’s equity.

4. It is shown on the debit side of the balance sheet among assets.

5. It represents a portion of profits or liability.

5. It represents on assets.

6. Reserve has normally credit balance. 6. Fund has normally debit balance.

7. It is part of retained earnings. 7. It is not part of retained earnings.

SOLUTION 8 (c)

(i) Surplus reserve --- Reserve for contingencies. (ii) Liability reserve --- Reserve for income tax. (iii) Valuation reserve --- Allowance for depreciation.

SOLUTION 8 (d)

CREATION OF FUND GENERAL JOURNAL


1 Sinking fund DR. Cash CR. (To record the creation of sinking fund)

DISPOSAL OF FUND GENERAL JOURNAL


1 Bonds payable DR. Sinking fund CR. (To record the disposal of sinking fund)

Documents

XII – ACCOUNTINGa4accounting.weebly.com/uploads/7/1/2/8/7128209/xii-1999.pdf · X I I – Accounting – 1999 (Regular / Private) Page 2 ... Q.No.2 PARTNERSHIP – FORMATION GIVEN